JEFFERIES: Nvidia has ‘tectonic upside’

Nvidia reported earnings and revenue that were both above analyst expectations, sending shares to a record high.

Nvidia is one of the main beneficiaries of a “tectonic shift” in computing because it’s graphics processing units are designed to handle artificial intelligence training better than traditional central processing units.

Nvidia’s stock has a lot more room to move higher, according to an analyst from Jefferies.

Nvidia reported earnings on Thursday that crushed Wall Street’s estimates and the stock is trading at all-time highs following the results. Mark Lipacis, an analyst at Jefferies, says that shares have further to run.

The company reported earnings of $1.33 per share on revenue of $2.64 billion, easily beating the $1.07 and $2.36 billion that Wall Street was anticipating. Nvidia also reported a beat in its gaming and data center businesses, in addition to a record quarter of sales for its automobile chips. Shares are up about 3.84% at $213.20 a piece.

“We’ve argued that Nvidia will be a marquee beneficiary of the 4th Tectonic Shift in Computing, where parallel processing architectures capture share from serial processing (x86) architectures in the computing market,” Lipacis wrote in a note to clients titled “Tectonic Upside.

“Gaming, DC, Auto and Crypto are all parallel applications, and their healthy growth this quarter supports our thesis.”

Compared to traditional central processing units that focus on one process at a time, the graphics processing units that Nvidia focuses on run a large number of calculations simultaneously which is called parallel processing. As the world starts to focus more on artificial intelligence, the parallel processing power of Nvidia’s GPUs will become increasingly important to crunch through the massive amount of calculation required to train an AI system.

Nvidia tackles AI on multiple fronts, providing extremely powerful GPUs for large-scale data centers like the ones Google and Amazon are building, as well as smaller, purpose-built chips for the automotive industry that help power autonomous driving.

Most of Nvidia’s businesses will only get stronger ias its chips get better, Lipacis said. Nvidia will see increasing demand for its chips as well as the now-nascent AI sector grows.

After the earnings beat, Lipacis raised his price target from $230 to $240, which is about 13% higher than Nvidia’s current price.